United States: Can Parties Use Settlement Agreements To Vacate A Prior Judgment?

In Hartford Accident and Indemnity v. Crum & Forster Specialty Insurance et al., the Eleventh Circuit recently reversed a District Court's decision refusing to vacate its prior judgments even though vacatur was a condition of a settlement agreement negotiated between two litigating parties. The Eleventh Circuit found the District Court abused its discretion and misapplied the Supreme Court's decision in U.S. Bancorp Mortgage Company v. Bonner Mall Partnership, which sets out an equitable approach that generally counsels against granting requests for vacatur made after the parties settle, absent exceptional circumstances. The Eleventh Circuit decision is consistent with analyses out of the First and Second Circuits.

Here's what happened: Hartford Accident and Indemnity Company ("Hartford") brought an action in the Southern District of Florida against Crum & Forster Specialty Insurance Company and Westchester Surplus Lines Insurance Company ("Crum & Forster") involving the scope of an insurance policy. The District Court granted a series of orders, including summary judgment in favor of Crum and Forster. Hartford appealed.

The Eleventh Circuit ordered Hartford and Crum & Forster to engage in mediation, but the parties failed to resolve the dispute at that time. After oral argument, the Eleventh Circuit ordered the parties to engage in a second mediation. That time, the parties reached a conditional settlement agreement ("Settlement Agreement"). The parties agreed to settle their dispute, contingent on the "issuance of a valid, final, written order by a court of competent jurisdiction vacating the Summary Judgments and related Cost Orders and Crum & Forster Fee Judgment... in their entirety." The Settlement Agreement further provided that if the District Court's orders were not vacated, "the Parties' controversy, as it existed before this Conditional Agreement was executed, shall remain live" and the rest of the Settlement Agreement "shall become null and void and otherwise unenforceable by any Party."

Following the settlement, the Eleventh Circuit granted the parties' joint motion to stay the appeal, and the parties proceeded to file a joint motion to vacate in the District Court. However, the District Court denied the parties' motion and refused to vacate the previous orders it had issued. In reaching its decision, the District Court cited the Supreme Court's decision in Bancorp. The District Court held that by voluntarily entering into the Settlement Agreement, the parties had forfeited their right to seek vacatur. The District Court reasoned that vacatur should only be granted when it serves a public interest, which, it said, was absent in this situation.

The parties both appealed. The Eleventh Circuit reversed and vacated the District Court's orders, holding that the District Court had applied Bancorp incorrectly. It ruled that when determining the propriety of granting vacatur, courts must weigh the benefits of settlement to the parties and to the judicial system against the harm to the public in the form of lost precedent. The Court found that, here, the exceptional circumstances in the case tipped the scales in favor of vacatur. First, the parties began settlement negotiations only after the Eleventh Circuit ordered them to do so, and then ultimately reached the Settlement Agreement only after the Eleventh Circuit ordered them to engage in a second round of negotiations. Second, both parties desired vacatur because settlement would otherwise be impossible, and the judicial system would benefit by conserving judicial resources if further proceedings would be curtailed. These exceptional circumstances outweighed the public value of preserving the District Court's ruling on questions of state contract law.

The Eleventh Circuit noted that any valid settlement will be voluntary. However, to conclude that a settlement conditioned on vacatur indicates a voluntary forfeiture of legal rights would eliminate the possibility that any settlement would ever warrant vacatur. The Eleventh Circuit explained that such an interpretation of Banco would be inconsistent with the Supreme Court's language and the equitable nature of the decision, which allows for post-settlement vacatur in exceptional circumstances. Additionally, the Eleventh Circuit rejected the application of a bright-line rule whereby vacatur should be denied if there is any harm to the public interest. The Court held that such a bright-line rule fails to recognize that the public interest is also served when judicial resources are conserved following settlement.

Can Parties Use Settlement Agreements To Vacate A Prior Judgment?

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